***************************************************
NOTICE
***************************************************
This document was converted from
Word97 to ASCII Text format.
Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page
numbers will not show up in this text version.
All text attributes such as bold, itallic, underlining, etc. from the
original document will not show up in this text version.
Features of the orginal document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.
If you need the complete document, download the
Word97, or Adobe Acrobat versions, if available.
The path and name of the Word97, and Acrobat files
will be the same as the ASCII Text file except that they will
end with the letters wp, doc, or pdf respectively,
instead of the letters txt.
****************************************************
Before the United States House of Representatives
The Committee on Commerce
Subcommittee on Telecommunications, Trade and Consumer Protection
Testimony of the Honorable William E. Kennard, Chairman
Federal Communications Commission
September 7, 2000
Introduction
I am pleased to be here today to address some of the complex and important issues
raised by foreign investment in the United States telecommunications market, with
particular focus on concerns raised by entities with substantial foreign government
ownership.
At home and abroad, the United States has led a worldwide revolution to bring
competition to the telecommunications sector. Domestically, this revolution has been
made possible by Congress's foresight in enacting the Telecommunications Act of 1996,
and the Commission's aggressive implementation of that Act. Internationally, the
Commission acted decisively to extend the principles of competition to reform the
antiquated system for delivering international services.
A key factor in enabling this revolution has been the Commission's vigorous
defense of the public interest as mandated by the Communications Act, including in
Section 310. The Commission has implemented this mandate through its procedures for
reviewing applications for entry into the U.S. market by foreign telecommunications
entities. The Commission's balanced and flexible use of the Communications Act and the
Commission's procedures has enabled it to both protect the interests of consumers and
national security, and at the same time take advantage of the stimulus of capital in our
economy.
Message
My message to the Subcommittee this morning is simple:
First, the Commission should not prejudge any application that comes before it.
Prospectively, I can say that we would give close scrutiny to any merger involving foreign
government-controlled providers. Specifically, we would determine whether the proposed
merger poses a very high risk to competition, or raises national security or law
enforcement concerns.
Second, the Commission has full and sufficient authority to address the issues of
both national security and domestic competition through the authority granted us by
Congress in the Communications Act of 1934 and the Telecommunications Act of 1996.
Commission policies implementing these statutes provide for a rigorous case-by-case
review of foreign ownership with sufficient flexibility to address the particular competitive
concerns raised by individual transactions.
Kinds of Applications
The bulk of applications before us that raise foreign entry issues request one of the
following:
(1) permission to provide international services under Section 214;
(2) permission to exceed the 25% foreign ownership cap for spectrum licenses
under Section 310(b)(4); and
(3) permission to merge a U.S. firm with a foreign firm, including a foreign firm
controlled partially or entirely by a foreign government.
Governing Law
The prospect of foreign government control of a U.S. carrier may pose unique
concerns. However, the standard we use to review such transactions is sufficiently flexible
to take these concerns into account.
The Commission unanimously adopted its framework for analyzing whether entry
into or investment in the U.S. market by foreign-owned firms is in the public interest in the
1997 Foreign Participation Order. Under that framework, there is a rebuttable
presumption that entry or investment by foreign-owned firms from WTO Member
countries is in the public interest. The Commission undertakes a case-by-case analysis of
all applications; however, to determine whether there are public interest factors that would
overcome that presumption and compel the Commission to deny an application. In
particular, the Commission assesses whether a transaction would pose a very high risk to
competition in the United States that cannot be addressed by safeguards and that will
thereby harm our domestic communications market and U.S. consumers.
In some cases, the Commission may determine that a transaction is in the public
interest, but that the application can only be granted subject to conditions that address
competitive concerns. In fact, the Commission's regulatory framework includes
competitive safeguards that apply to firms that are affiliated with dominant foreign firms.
If as a result of its review of an application, the Commission concludes that these standard
safeguards are not sufficient to address specific competitive concerns, the Commission
may impose additional, tailored safeguards, or deny the application altogether. In other
cases, the Commission may determine that entry cannot be "conditioned" sufficiently to
protect the public interest. The Commission will then deny the application.
In addition to the competition concerns addressed as part of the Commission's
public interest analysis, the Commission has always had, and continues to maintain, the
ability to consider a range of public interest factors in considering whether to allow entry
into and investment in the U.S. market by foreign-owned firms. These additional public
interest factors include national security and law enforcement concerns. On these issues,
the Commission accords deference to the expertise of Executive Branch agencies, such as
the FBI and the Department of Defense.
Public Interest Features of Process
The United States has long welcomed foreign investment as a means of achieving a
specific end: strengthening competition in the U.S. marketplace, to the benefit of U.S.
consumers.
At the same time, the Commission has the tools at its disposal to ensure that foreign
investment is in the public interest. The public interest requires that foreign investment not
harm competition in the U.S. market or threaten national security and law enforcement
concerns.
There are three essential features to this process that I hope the Subcommittee will
keep in mind.
The procedures are comprehensive. They cover a wide range of public and national
interests, and they include the concerns of the many agencies assigned to protect those
interests.
The procedures are flexible. They permit us to weigh and balance, to amend and
condition, to keep up with technology, and to remain in harmony with the nation's
international obligations.
Finally, the procedures work. Increased competition, both from U.S. and foreign-
owned firms, has not harmed the U.S. market, but has strengthened it, to the benefit of U.S.
consumers. Today, U.S. consumers enjoy lower prices and better, more innovative
services.
Closing
In sum, we have the tools we need to do the job. Use of them has allowed the entry
of innovation and capital from abroad, while protecting national security and the interests
of American consumers at home.
These tools also have been part of the success story of our nation's leadership in the
development of competitive telecommunications markets.
Thank you.
See Rules and Policies on Foreign Participation in the U.S. Telecommunications Market,
IB Docket No. 97-142, Market Entry and Regulation of Foreign-Affiliated Entities, IB Docket No. 95-22,
Report and Order and Order on Reconsideration, 12 FCC Rcd 23891 (1997) ("Foreign Participation
Order"), recon. pending.